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(a)
Future Value: The future value is value of present amount compounded at an interest rate until a particular future date. The following formula is used to calculate the future value of an amount:
The accumulated amount withdrawn by T.
(a)
Future Value: The future value is value of present amount compounded at an interest rate until a particular future date. The following formula is used to calculate the future value of an amount:
Explanation of Solution
Step 1: Calculate the amount of simple interest.
Step 2: Calculate the accumulated amount.
Therefore, the accumulated amount withdraw by T is $14,400.
T invested $9,000 at 5% interest rate for 12 years. He withdrew the accumulated amount of money after 12 years. In that, he earned the interest amount of $5,400 from the investment (using simple interest method). Therefore, the accumulated amount withdrawn by T is $14,400.
b)
To Calculate: The future value of a single amount (if the interest compounded annually).
b)
Explanation of Solution
Therefore, the future value of an amount is $16,162.74.
T invested $9,000 at 5% interest rate for 12 years. If the interest amount compounded annually then the future value of a 12th year at 5% interest would be 1.79586 (Refer table 1 for the future value of money). Therefore, the amount earned by T is $16,162.74.
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